National Commentary

The Fed’s Fear Of Deflation

nfbentonpicA cascade of late-breaking stories of considerable significance broke this week, further illuminating the sordid landscape against which the bulk of humanity is pitted.

In addition to the Senate passage of the compromise budget legislation, the the Federal Reserve announced that it would take a tiny baby step toward restricting its massive stimulus designed to keep the international banking and investment communities afloat even as conditions facing ordinary people remain very difficult.

As a result, the Dow shot up almost 300 points. The news was that the stimulus will keep going, with only a tiny, symbolic step to restrict it.

The claim is that a “tapering” of the stimulus is coming due now as a result of the rebounding of the overall economy. But it is not so simple. The reality is more to the effect that as consumer demand continues to fade – due to the pressures on us ordinary people – prices are dropping, and the economy slipped into a deflation in the most recent period.

Now that there is a total disconnect between the behavior of the investor markets and the real economy, there is nothing standing in the way of the obscene escalation of the gaping divergence between the fortunes of the super-rich and the rest of us.

The estimate now is that the top one percent in the U.S. are earning 340 times more than the so-called “middle class.” It has never been remotely this bad ever in the history of the country.

But that wealth of the top one percent is largely nominal. It is paper wealth that can only be maintained by a smooth, uninterrupted continuation of the Federal Reserve’s stimulus and the political malleability of the national electorate.

If only secretly, the Fed is getting nervous at the effect of the continued pressures to make the poor actually poorer while the rich enjoy a boom in paper wealth, only.

The budget deal hammered out in Congress, which the media is covering only from the standpoint that it is a deal, not on the merits or lack thereof of its contents, makes another big assault on the nation’s vulnerable, while taking no similar bite out of the assets of the rich.

By not extending unemployment benefits to 1.3 million Americans, on top of the recent move to cut food stamp benefits that 47 million Americans rely on, official Washington is exacerbating what is developing into a full-blown deflationary crisis.

The further collapse of the buying power of the middle and lower classes is not only a moral abomination, but will be the Achilles’ heel that will, if not corrected, plunge the nation into Phase Two of the Great Depression of the 21st Century.

The madness of the ruling class could not have been exhibited better than in the interview of Jessica Williams with Forbes magazine columnist John Tamny on Jon Stewart’s Comedy Central Tuesday night. Tamny proposed the elimination of food stamps, altogether, claiming foot stamps are “cruel” for undermining “dignity.”

Instead, the nation should rely on voluntary charities to step in when people are “literally starving,” he proposed.

We also learned this week that a federal court judge opined that the National Security Agency (NSA) capture of phone records of millions of unknowing Americans is a violation of the Fourth Amendment of the Constitution. It marked a major vindication of the ongoing whistle blowing efforts of Edward Snowden.

In Time magazine’s choice of Pope Francis as its Person of the Year by a narrow margin over Snowden, it should not be missed that the two of them, taken together, represent a tandem of major critics of the profound malaise that currently bedevils the planet.

The one percent of super rich have lost all sense of limits to their self-serving behavior. In the past, elites recognized the need for wider good governance and a semblance of fairness to maintain an stable environment in which to enjoy their advantage.

That’s all been abandoned now. The end game scenario is for a police state run by a collapsing regime knowing no limit to the cruelty it is prepared to inflict to the benefit of no one but itself.